Republican Economic Policy and the Reconciliation Bill
The third reconciliation bill has become a pivotal topic in the realm of Republican economic strategy. President Trump is advocating for it, and House Budget Committee Chairwoman Jody Arrington (R-Texas) is in favor as well. Meanwhile, House Speaker Mike Johnson (R-Louisiana) is working to secure the necessary votes, and Ways and Means Committee Chairman Jason Smith (R-Missouri) has expressed openness to the idea—if the numbers add up.
On the other hand, Senate Republicans seem a bit less assured about this. Former Senate Minority Leader Mitch McConnell (R-Ky.) made it clear: “It’s safe to say there isn’t a new reconciliation bill in the works.”
One crucial question that Congressional Republicans might consider isn’t solely what they can get passed but what they’re truly ready to champion.
Ultimately, someone will emerge victorious from this debate. Should the House Republicans hold sway, the real challenge will be in deciding what the bill actually contains. Mr. Trump emphasizes that national defense and election integrity should be prioritized. However, those issues don’t necessarily translate into an agenda for economic growth. Genuine growth comes from breaking down obstacles to work, savings, investment, and capital formation.
The supply-side advocates have distinct objectives: they aim for lower corporate tax rates, no capital gains tax, complete elimination of estate taxes, and a total overhaul of how the tax code addresses savings and investments.
The 2026 settlement isn’t the ultimate solution for achieving all of that. Still, it could facilitate some significant progress.
Indexing Capital Gains to Inflation
Currently, investors are taxed on the nominal profits from selling assets. For instance, a family that purchased a home for $600,000 in 2010 and sold it for $1.2 million today hasn’t genuinely doubled its wealth. A large part of that increase reflects the dollar’s diminished buying power. Taxing profits amid inflation essentially amounts to double taxation. Congress should align all capital gains taxation with inflation rates.
There are already bipartisan alternatives gaining traction. Representatives Jimmy Panetta (D-Calif.) and Mike Kelly (R-Pennsylvania) have reintroduced the Housing Market Expansion Act, which has garnered support from 123 co-sponsors. This proposed legislation aims to raise the exclusion for principal residences from $250,000 to $500,000 for single filers and from $500,000 to $1 million for joint filers. These thresholds haven’t been updated since 1997 to account for inflation.
The 2026 President’s Economic Report identifies supply constraints as a significant factor driving up housing costs. Implementing these reforms would alleviate tax burdens that currently dissuade homeowners from selling, relocating, or downsizing.
Accrual of Tax-Free Wealth
Over the years, universities and hospitals have amassed vast amounts of untaxed wealth while excluding the very people they profess to serve. For example, Harvard University’s endowment has surpassed $56 billion. Most investment income remains exempt from federal taxes. Economist Richard Vedder argues that tax breaks for colleges are among the most regressive policies embedded in the tax system.
Previously, Congress raised the endowment tax to 8% in the last reconciliation package. Instituting a 15% excise tax on donations exceeding $100 million would reinforce that tax-exempt status should be seen as a privilege rather than a right.
This reasoning extends to commercial ventures undertaken by universities and hospitals. If a university manages a hotel, engages in patent licensing, or runs a healthcare system, it is conducting commerce and should be taxed accordingly.
Addressing Medicaid Fraud
Every dollar lost to Medicaid fraud represents tax money that is effectively stolen from both taxpayers and the broader economy. Capping federal Medicaid funding to states with proven high fraud rates would be fiscally responsible and beneficial for growth. This should be part of any serious settlement plan.
Redirecting Medical Subsidies
The current approach channels public funds through insurance intermediaries, who often collect fees at every step. The President’s Economic Report for 2026 highlights how a scarcity of competition within the medical provider market drives prices up. Redirecting health subsidies straight to individuals could restore essential pricing signals to a field that has long been disconnected from them.
The Republican Party currently operates with a narrow support base and a slim majority, so securing votes might be challenging. Yet, the real inquiry for Congressional Republicans hinges on not just what they can pass but also what they truly believe in.
All the proposals mentioned aim to eliminate barriers to capital formation and enhance productive investment. This isn’t just a collection of disparate ideas; it forms a cohesive growth agenda that can be implemented in multiple ways.
